Annual Monetary and Credit Policy for the year 2003-2004

Apr 29, 2003, 06.48pm IST

As indicated in the mid-term Review of October 2002, national EFT (NEFT) is being introduced using the backbone of the structured financial messaging system (SFMS) of the IDRBT. NEFT would provide for movement of electronic transfer of funds in a safe, secure and quick manner across branches of any bank to any other bank through a central gateway of each bank, with the inter-bank settlement being effected in the books of account of banks maintained at RBI. Since this scheme requires connectivity across a large number of branches at many cities, a special EFT (SEFT) was introduced in April 2003 covering about 3000 branches in 500 cities. This has facilitated same day transfer of funds across accounts of constituents at all these branches.

National Settlement System

The clearing and settlement activities are dispersed through 1,047 clearing houses managed by RBI, the State Bank of India and its associates, public sector banks and other institutions. In order to facilitate banks to have better control over their funds, it is proposed to introduce national settlement system (NSS) in a phased manner.

Real Time Gross Settlement System

As indicated in the mid-term Review of October 2002, development of the various software modules for the RTGS system is in progress. The initial set of modules is expected to be delivered by June 2003 for members to conduct tests and familiarisation exercises. The live run of RTGS is scheduled towards the end of 2003.

Annex IV. Developments in Government Securities Market

Calendar for Issuance of Dated Securities

The system of releasing the calendar for issuance of Government of India dated securities every half-year was introduced in 2002-03. These calendars were generally adhered to with some minor deviations with regard to the timing of the auctions, amounts raised and also the tenor of the security from the scheduled issuances. An indicative calendar for the first half of the financial year 2003-04 was issued on March 31, 2003.

Consolidation of Debt of Government of India

The Reserve Bank has been resorting to consolidation of securities since 1999 through reissuance of existing securities. In line with this process, 19 out of 31 securities issued during 2002-03 were reissues. Out of an amount of Rs.1,25,000 crore (gross) raised through dated securities under the market borrowing programme of the Central Government, an amount of Rs.74,000 crore (59 per cent of the gross amount) represented reissuances.

As at the end of March 2003, out of 117 outstanding marketable government securities of Rs.6,73,905 crore, 29 securities with outstanding stock of Rs.10,000 crore or more account for 54 per cent. RBI will continue to undertake such passive consolidation through reopenings.

The Government of India has also announced in Budget 2003-04 its intention to offer a buy-back of loans contracted under the high cost regime of the past and issue new securities at current market yield. The buy-back will be entirely on a voluntary basis from banks that are in need of liquidity, or encashing the premium for making provisions for their non-performing assets (NPAs) thereby improving their balance sheets. Such switch operations would also result in consolidation of debt. The details of the schemes are being worked out by the Government in consultation with RBI.

The Government of India also introduced a debt swap scheme in order to restructure state governments' debt. This policy measure will help in reduction of the interest burden of the States by prepayment to the Centre out of the proceeds of fresh market borrowings and additional resources out of full allocation of small savings collections to the States. In 2002-03, Rs.10,000 crore were raised as market loans for this purpose. The debt swap scheme is expected to continue for the next few years depending on market conditions and liquidity position.

Trading on Stock Exchanges

In order to enlarge the number of participants and to provide country-wide access to trading in government securities, a scheme of anonymous screen-based order-driven trading in government securities on the stock exchanges in accordance with the accepted best practices relating to trading and settlement was announced in Budget 2002-03. Accordingly, a facility has been provided to buy and sell government securities through the stock exchanges (NSE, BSE and OTCEI) with effect from January 16, 2003.